If an economy is experiencing a recession will both aggregate demand and aggregate supply be affected?
Yes.
Think about how all important economic forces are changing/responding to recessionary conditions.
During a recession, both aggregate demand and aggregate supply are typically affected, albeit in different ways.
1. Aggregate Demand: In a recession, there is a decrease in consumer spending, business investment, government spending, and net exports. This leads to a decrease in the overall demand for goods and services in the economy. Factors such as consumer confidence, unemployment rate, and access to credit play a significant role in influencing aggregate demand during a recession.
2. Aggregate Supply: A recession can impact aggregate supply through various channels. Firstly, reductions in consumer spending and business investment can lead to a decrease in production and output. Additionally, during a recession, there is often a decrease in labor force participation, as businesses lay off workers. This can result in a decrease in the availability of productive resources, such as labor and capital, thereby affecting aggregate supply.
It is important to note that the specific impact on aggregate demand and aggregate supply can vary depending on the nature and severity of the recession, as well as other economic factors at play. Economic policies implemented by governments and central banks, such as fiscal stimulus or monetary easing, can also influence the direction and magnitude of these effects.